Financial losses arising from Covid and the rise of professional liability

It is fair to say that the financial effects of the coronavirus pandemic are likely to be felt within many industries for some time. At the forefront of many businesses’ minds has been attempts to recoup losses under insurance policies (e.g. for Business Interruption losses). However, inevitably there will come a point where these run their course, either because companies’ claims against their insurers have reached an end resulting in a pay out, or it has been concluded that a business does not have a valid claim for losses. If the latter occurs, businesses will look to their advisers for any failures by them in the advice given.

We have seen this trend recently in a professional negligence claim brought by a group of childcare nurseries against their insurance broker for an alleged failure to properly advise on insurance policies. It has been alleged that many nurseries have been left with insurance that did not adequately cover them for their losses and claims have been brought against the brokers. It is expected that an insurance broker will advise and arrange appropriate insurance based on business requirements and that businesses will rely on that advice given on the basis of a professional duty that has arisen. Claims could arise where there has been an established duty of care that has been breached. Whether that duty extends to the breach will be assessed on a case by case basis, by reference to what a reasonably competent professional (e.g. an insurance broker) would do in those specific circumstances. Professional negligence claims can therefore be complex because they require in depth analysis of what the needs of a particular business are, the instructions given to a professional, the advice subsequently given and lastly the loss (if any) arising from that advice.

It is worth considering in scenarios where businesses have not been able to recover their losses as they might have expected if this is because they have been badly advised. If so, this might give rise to professional negligence claims against not just insurance brokers, but also potentially other professions, such as financial and legal advisers. Ideally, the possibility of a professional negligence action should be assessed at the outset and early advice should be sought on both sides if it is apparent that such a claim is likely to arise.